The publisher's shares (ticker: PSON.U.K.) are down 12% from last July's high, but there's at least 20% upside if you're prepared to wait out a 150 million British pound ($230 million) restructuring. The stock closed on Friday at 1,138 pence, and trades at 12.7 times projected earnings for 2014, the year when earnings per share are expected to resume growth after the charges. By 2015, the earnings per share are seen hitting 101 pence, up more than 10% from 2014. The valuation isn't too steep. Education-publishing rival
McGraw Hill
(MHP) trades at 14.2 times forward earnings and European publisher
Reed Elsevier
(REL.U.K.) at 13.8 times.

Pearson has been known for beating estimates. So, a fall in half-year profits last July and new Chief Executive John Fallon's February announcement of a restructuring, most of which will be absorbed in 2013, spooked investors. But it will pay to keep your nerve.

Pearson already has shed media businesses, an investment bank, a financial-data provider, and a wax museum in order to generate most of its profit from education. More than half of the education profit comes from North America, where declining state education budgets, fluctuating university admissions, and legislation promoting more cross-border resales of new books have unsettled the market.

FALLON'S PLAN TO LIGHTEN the group's dependence on print-published course books in favor of digital content, software, and services doesn't differ greatly from predecessor Marjorie Scardino's. It's just more urgent. "This is really the equivalent of doing five years of normal restructuring in one," Fallon has said.

The digital revolution is attracting new players.
News Corp.
(NWS), publisher of Barron's, is expanding its digital-education business. And without the need for a complex network of print-publishing and distribution operations, the barriers to entry are low. The risks are that new entrants will drag down the value of the content or software, especially if it's free, like open-source software.

Fallon recognizes this and will use the restructuring to push further into services that aren't easily replicated or deflated. "We can prosper, for example, by embracing open source, building the learning ecosystem around which we can provide a whole array of services," he says. Bernstein analyst Claudio Aspesi sees Pearson's services, such as running schools and teaching classes, as a good buffer to the deflationary pressure on content and software.

Outside of the U.S., Fallon has pledged to streamline the international business, tapping further into the BRIC countries' (Brazil, Russia, India, and China) near-boundless growth opportunities. Pearson already hived off book publisher Penguin into a joint venture with Bertelsmann's Random House last year, and is keeping all options open for its Financial Times newspaper arm.

This leaner group has low net debt of £918 million and £500 million of "acquisition headroom" to help cement digital and emerging-market growth.

The results of the restructuring could well be a business in 2015 that is 75% weighted to digital and 25% to emerging markets, says Blake Hutchings, fund manager at Threadneedle Asset Management. He sees 20% to 25% upside in the longer term. He also points out that Pearson pays a very attractive, sustainable, and growing dividend, and the shares yield 4%.

Extended Holiday

Europe's major bourses lost ground after Easter. Ireland was off 3.8%.

KATHY GORDON is a corporate reporter for The Wall Street Journal in London.